ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Cautionary Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward looking
statements. "Forward-looking statements," as that term is defined in the Private
Securities Litigation Reform Act of 1995, are statements that are not historical
facts and involve a number of risks and uncertainties. Words herein such as
"may," "will," "should," "could," "would," "expects," "plans," "anticipates,"
"believes," "estimates," "projects," "predicts," "intends," "potential,"
"continues," and similar expressions (as well as other words or expressions
referencing future events, conditions or circumstances) identify forward-looking
statements.

Forward-looking statements include, but are not limited to: failure or delay of
European Medicines Agency, Health Canada, United States Food and Drug
Administration and other regulatory reviews and approvals; competitive
developments affecting the Company's product candidates; delays in product
development or clinical trials or other studies; patent disputes and other
intellectual property developments relating to the Company's product candidates;
unexpected regulatory actions, delays or requests; the failure of clinical
trials or other studies or results of clinical trials or other studies that do
not meet expectations; the fact that subsequent analyses of clinical trial or
study data may lead to different (including less favorable) interpretations of
trial or study results or may identify important implications of a trial or
study that are not reflected in Company's prior disclosures, and the fact that
trial or study results or subsequent analyses may be subject to differing
interpretations by regulatory agencies; the inability to successfully develop
the Company's product candidates or receive necessary regulatory approvals;
inability to make product candidates commercially successful; changes in
anticipated expenses; changes in the Company's financing requirements or ability
raise additional capital; our ability to complete development of, receive
regulatory approval for, and successfully commercialize ARIKAYCE; our estimates
of expenses and future revenues and profitability; our plans to develop and
market new products and the timing of these development programs; our estimates
of the size of the potential markets for our product candidates; our selection
and licensing of product candidates; our ability to attract third parties with
acceptable development, regulatory and commercialization expertise; the benefits
to be derived from corporate license agreements and other third party efforts,
including those relating to the development and commercialization of our product
candidates; the degree of protection afforded to us by our intellectual
portfolio; the safety and efficacy of our product candidates; sources of
revenues and anticipated revenues, including contributions from license
agreements and other third party efforts for the development and
commercialization of products; our ability to create an effective direct sales
and marketing infrastructure for products we elect to market and sell directly;
the rate and degree of market acceptance of our product candidates; the timing
and amount of reimbursement for our product candidates; the success of other
competing therapies that may become available; and the availability of adequate
supply and manufacturing capacity and quality for our product candidates.

Forward-looking statements are based upon our current expectations and beliefs,
and involve known and unknown risks, uncertainties and other factors, which may
cause our actual results, performance and achievements and the timing of certain
events to differ materially from the results, performance, achievements or
timing discussed, projected, anticipated or indicated in any forward-looking
statements. Such factors include, among others, the factors discussed in Item
1A "Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2013 filed with the Securities and Exchange Commission ("SEC") on
March 6, 2014. We caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date they are made. We
disclaim any obligation, except as specifically required by law and the rules of
the Securities and Exchange Commission, to publicly update or revise any such
statements to reflect any change in our expectations or in events, conditions or
circumstances on which any such statements may be based, or that may affect the
likelihood that actual results will differ from those set forth in the
forward-looking statements.

The following discussion should be read in conjunction with our consolidated
financial statements and related notes thereto included elsewhere in this
Quarterly Report on Form 10-Q and the consolidated financial statements and
related notes thereto in our Annual Report on Form 10-K for the year ended
December 31, 2013.

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OVERVIEW

Insmed is a biopharmaceutical company currently focused on developing and
commercializing inhaled therapies for patients battling serious lung diseases
that are often life threatening. Our lead product candidate, ARIKAYCE, or
liposomal amikacin for inhalation (LAI), is an inhaled antibiotic treatment that
delivers a proven and potent anti-infective directly to the site of serious lung
infections.

In March 2014, we reported top-line clinical results from the double-blind
portion of our phase 2 clinical trial in the United States (US) and Canada of
ARIKAYCE in patients who have lung infections caused by nontuberculous
mycobacteria (NTM). The randomized, double-blind, placebo-controlled phase 2
clinical trial compared ARIKAYCE (590 mg delivered once daily), added to
standard of care treatment, versus standard of care treatment plus placebo, in
90 adult patients with treatment resistant NTM lung disease. Eligibility for the
study required patients to have been on the American Thoracic Society/Infectious
Disease Society of America guideline therapy for at least six months prior to
screening and to continue to have persistently positive mycobacterial cultures.
The primary efficacy endpoint of the study was a semi-quantitative measurement
of the change in mycobacterial density on a seven-point scale from baseline (day
one) to the end of the randomized portion of the trial (day 84). ARIKAYCE did
not meet the pre-specified level for statistical significance although there was
a positive trend (p=0.148) in favor of ARIKAYCE. However, ARIKAYCE did achieve
statistical significance with regard to the clinically relevant key secondary
endpoint of culture conversion, with 11 out of 44 patients treated with ARIKAYCE
(added to standard of care treatment) demonstrating clearance of the infecting
mycobacterial organism (culture negative) by day 84 of the study as compared to
3 out of 45 patients treated with placebo (added to standard of care treatment)
(p=0.01).

In May 2014, additional data were presented at the American Thoracic Society
meeting. At the conclusion of the 84-day double blind phase of the trial, 78 of
the 80 patients agreed to receive once-daily ARIKAYCE plus standard of care
treatment for an additional 84 days. Data from 68 of these patients who
completed the visits during the additional open label phase were available for
inclusion in the poster. These results collected from the open label phase show
that 21 of these patients were culture negative for NTM at Day 168. This data
reflects 10 patients who were culture negative at Day 84 as well as 5 additional
patients from the ARIKAYCE arm and 6 additional patients who were on placebo,
switching to ARIKAYCE during the open-label phase.

In June 2014, the US Food and Drug Administration (FDA) granted ARIKAYCE
Breakthrough Therapy Designation for the treatment of adult patients with NTM
lung disease who are treatment refractory. This designation is based on
findings from our U.S. phase 2 clinical trial of ARIKAYCE to treat NTM lung
infections. ARIKAYCE has already received Orphan Drug, Qualified Infectious
Disease Product (QIDP) and Fast Track designations from the FDA for the
treatment of NTM lung infections and has also received Orphan Drug Designation
from the European Medicines Agency (EMA).

In August 2014 we announced that, following discussions with European regulatory
authorities, we intend to file by the end of 2014 a Marketing Authorization
Application (MAA) with the EMA for ARIKAYCE for the treatment of NTM lung
infections in treatment refractory patients as well as for Pseudomonas
aeruginosa (Pseudomonas) lung infections in cystic fibrosis (CF) patients.

In August 2014 we also announced that, we will proceed with our previously
planned Phase 3 study of the effectiveness of ARIKAYCE for the treatment of lung
infections in the broad NTM population. This decision follows a meeting with
the FDA in which the FDA acknowledged that exploration of the effectiveness of
ARIKAYCE in a broader population is appropriate, based on the results of the
recently conducted Phase 2 trial, which showed statistically significant
negative culture conversion in patients refractory to standard therapy. We also
plan to initiate a second Phase 3 study which will be designed to confirm, in as
short a timeframe as possible, the positive culture conversion results seen in
the Phase 2 study. This confirmatory study will primarily investigate ARIKAYCE
for use in the treatment refractory population with mycobacterium avium complex
(MAC) NTM lung infections. This subgroup of the Phase 2 trial's patients
responded particularly strongly to the treatment.

We believe this two-trial approach will enable both the rapid confirmation of
the previous study results to provide the quickest path to filing, as well as
expansion of the potential overall label for approval. Following discussions
with the FDA, both trials will focus on culture conversion as the primary
measure of efficacy with additional goals of demonstrating sustainability and
safety. We expect results from the smaller confirmatory study in the first half
of 2016 and results for the larger trial in 2017.

The CF and NTM target indications address orphan patient populations. Our
strategy includes plans to continue to develop ARIKAYCE in the NTM patient
population and for additional indications beyond Pseudomonas in CF and NTM. We
also plan to develop, acquire, in-license or co-promote other products that
address orphan or rare diseases in the fields of pulmonology and infectious
disease. Our current primary development focus is to obtain regulatory approval
for ARIKAYCE in these two initial indications and to prepare for
commercialization in the US, Europe, Canada and Japan. We anticipate that if
approved, ARIKAYCE would be the first once-a-day inhaled antibiotic treatment
option available for the CF indication and the NTM indication. The following
table summarizes the current status of ARIKAYCE development.

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Product
Candidate/Target
Indications Status Next Expected Milestones
 We reported top-line  We intend to file by the
clinical results from our end of 2014 a MAA with the EMA
phase 2 clinical trial which for the treatment of NTM lung
stated that ARIKAYCE did not infections in treatment
meet the pre-specified level refractory patients as well as
for statistical significance for Pseudomonas lung infections
with respect to the primary in CF patients.
endpoint, but did achieve  We will proceed with our
statistical significance with previously planned Phase 3
regard to the clinically study of the effectiveness of
relevant key secondary ARIKAYCE for the treatment of
endpoint of culture lung infections in the broad
conversion. NTM population.
 Results collected  We also plan to initiate
from the open label phase a second Phase 3 study which
show that 21 of these will be designed to confirm, in
ARIKAYCE patients were culture as short a timeframe as
Non-tuberculous negative for NTM at Day 168. possible, the positive culture
mycobacteria  Granted Orphan Drug conversion results seen in the
(NTM) lung designation in Europe and the Phase 2 study. This
infections US. confirmatory study will
 Granted QIDP primarily investigate ARIKAYCE
designation, which includes for use in the treatment
Priority Review, by the FDA. refractory population with MAC
 Granted Fast Track NTM lung infections.
designation by the FDA which  If approved, we expect
permits a rolling submission ARIKAYCE would be the first
of an NDA. approved inhaled antibiotic
 Granted Breakthrough treatment for NTM lung
Therapy designation for infections.
ARIKAYCE in the US in  We are developing
June 2014 based upon the plans to commercialize
culture conversion results in ARIKAYCE, if approved, in
the phase 2 clinical trial. certain countries in Europe and
in the US, and eventually
Canada, Japan and certain other
countries including Korea,
  Taiwan and China.
   
 Reported top-line  We intend to file a
results from our phase 3 MAA with the EMA by the end of
clinical trial conducted in 2014 and in Canada during the
Europe and Canada, in which first half of 2015.
once-daily ARIKAYCE achieved  We are developing
its primary endpoint of plans to commercialize
non-inferiority when compared ARIKAYCE, if approved, in
to twice-daily tobramycin certain countries in Europe and
inhaled solution. in Canada where we expect it
ARIKAYCE  Conducting a would be the only once-a-day
Pseudomonas two-year, open-label safety treatment for Pseudomonas lung
aeruginosa lung study in patients who infections in CF patients.
infections in CF completed the phase 3  We currently do not
patients clinical trial. We expect to plan to initiate any further
complete this study in studies in Pseudomonas lung
mid-2015. infections.
 Reported top-line
results from the first group
of patients who completed the
first year of the two-year
open label extension study.
 Granted orphan drug
designation in Europe and the
 US. 

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ARIKAYCE  Completed phase 2  We currently do not
Pseudomonas study in the US. intend to initiate further
aeruginosa and  Granted orphan drug clinical studies with respect
other designation in the US. to a non-CF bronchiectasis
susceptible indication.
organisms
causing lung
infections in
non-CF
bronchiectasis
patients  

Amikacin sulfate is an FDA-approved antibiotic with proven efficacy in the
treatment of a broad range of gram-negative infections, including Pseudomonas
and NTM. ARIKAYCE is in the aminoglycoside class of antibiotics. We believe
there currently is no drug approved in Europe or the US for treatment of NTM
lung infections, and as a result all current drug treatments for NTM are used
off-label. If approved for NTM patients, we believe ARIKAYCE would be the first
and only approved inhaled antibiotic for the treatment of NTM lung infections.
If approved for CF patients with Pseudomonas lung infections, we believe
ARIKAYCE would be the first inhaled antibiotic to be approved for once-daily
administration in this indication. ARIKAYCE has been granted orphan drug
designations in the following indications:

We were incorporated in the Commonwealth of Virginia on November 29, 1999. On
December 1, 2010, we completed a business combination with Transave, Inc.
(Transave), a privately held, New Jersey-based pharmaceutical company focused on
the development of differentiated and innovative inhaled pharmaceuticals for the
site-specific treatment of serious lung infections.

Our Strategy

Our strategy is to focus on the development and commercialization of innovative
inhaled therapies for patients with serious lung diseases in orphan
indications. While we believe that ARIKAYCE has the potential to treat many
different diseases, our attention is initially focused on regulatory approval
and commercialization preparation for our two initial indications: (1) NTM lung
infections and (2) Pseudomonas lung infections in CF patients. Our current
priorities are as follows:

 Actively pursue new drug filings to secure approval for ARIKAYCE to
treat NTM lung infections in the US, Europe, Canada and Japan;

 Actively pursue new drug filings to secure approval for ARIKAYCE to
treat Pseudomonas lung infections in CF patients in Europe and Canada;

 Expand our product supply chain in support of clinical development
and if approved, commercialization;

 Prepare for commercial launch in the NTM indication in the US,
Europe, Canada and eventually Japan and certain other countries including Korea,
Taiwan and China;

 Prepare for commercial launch in Pseudomonas in CF patients
indication in Europe and Canada;

 Attempt to develop, acquire, in-license or co-promote promising late
stage or commercial products that we believe are complementary to ARIKAYCE and
our core competencies; and

 Continue to develop novel formulations of existing therapies, where
such reformulation could materially improve the treatment paradigm for the
underlying disease or to enable pursuit of a new indication.

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In support of these priorities, we completed our registrational phase 3 clinical
study of ARIKAYCE in CF patients with Pseudomonas lung infections in Europe and
Canada. We plan to submit regulatory marketing applications for the CF and NTM
indications in Europe by the end of 2014 and in Canada in the first half of
2015. In the first half of 2014, we completed our US and Canadian phase 2
clinical study of ARIKAYCE for the treatment of NTM lung infections in treatment
refractory patients. We plan to initiate two global Phase 3 clinical trials of
ARIKAYCE in NTM; one for the broad NTM patient population and one confirmatory
study for treatment refractory patients with NTM lung infections. We plan to
scale up manufacturing, we are identifying second source suppliers, and we plan
to implement supply and quality agreements in preparation for commercialization
of ARIKAYCE. In February 2014, we entered into a contract manufacturing
agreement with Therapure Biopharma Inc. (Therapure) for the manufacture of
ARIKAYCE at the larger scales necessary to support commercialization. In
July 2014, we entered into a commercialization agreement with PARI Pharma GmbH
(PARI), the manufacturer of our drug delivery nebulizer, to address our
commercial supply needs. We have commenced the build-out of our commercial
infrastructure in preparation for potential commercial launches in Europe,
Canada and the US. We will continue to evaluate opportunities for additional
products through various business development channels.

Product Candidates

Our lead product candidate, ARIKAYCE, or LAI, is a once-a-day inhaled
antibiotic treatment engineered to deliver an anti-infective directly to the
site of serious lung infections. There are two key components of ARIKAYCE: the
liposomal formulation of the drug and the nebulizer device through which
ARIKAYCE is inhaled via the mouth and into the lung. The nebulizer technology
is owned by PARI, but we have exclusive access to this technology, which is
specifically developed for the delivery of our liposomal encapsulation of
amikacin, through our licensing agreement with PARI. Our proprietary liposomal
technology and the nebulizer are designed specifically for delivery of
pharmaceuticals to the lung and provides for potential improvements to existing
treatments. We believe that ARIKAYCE has potential usage for at least two orphan
patient populations with high unmet need: patients who have NTM lung infections
and CF patients who have Pseudomonas lung infections. We estimate the combined
global market potential for these two orphan indications to be approximately $1
billion.

ARIKAYCE has the potential to be differentiated from amikacin and certain
marketed drugs for the treatment of chronic lung infections if it can be
demonstrated to provide improved efficacy, safety and patient convenience. We
believe ARIKAYCE's ability to deliver high, sustained levels of amikacin
directly to the lung and to the specific site of the underlying infection could
distinguish it from other alternatives. We are also investigating ARIKAYCE's
potential for durability of effect, benefiting patients when off treatment or
for an extended period of treatment. In addition, the inhalation delivery of
ARIKAYCE may reduce the potential for adverse events such as ototoxicity
(hearing loss, ringing in the ears and/or loss of balance) and nephrotoxicity
(toxicity to the kidneys), as compared with intravenous (IV) administration of
amikacin. If approved, we expect that ARIKAYCE will be administered once-daily
for approximately 13 minutes via inhalation using the eFlow® Nebulizer System,
which has been optimized specifically for ARIKAYCE by PARI. We believe that
this nebulizer system will reduce treatment time or dosing frequency, as
compared with the currently marketed inhaled antibiotics, which require dosing
two to three times daily with treatment times ranging from approximately 10 to
40 minutes per day. By easing the patients' treatment burden we believe that
ARIKAYCE can potentially improve patient compliance, which we believe may in
turn lead to a reduction in the development of antibiotic resistance and,
ultimately, lead to clinical benefit.

We believe that ARIKAYCE may provide: (i) improved efficacy resulting from
sustained deposition of drug in the lung and improved ability to reach the site
of infection (for CF Pseudomonas infections, this means penetration of biofilm
and facilitated drug release by factors that are secreted by the bacteria, and
for NTM, this means enhanced uptake into macrophages, where NTM often grows);
(ii) decreased adverse events and improved tolerability as compared with
amikacin delivered intravenously, and (iii) reduced dosing frequency or
treatment time as compared to existing products. In the future we may conduct
head-to-head comparative studies that would be necessary to make comparative
statements against other products.

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ARIKAYCE for Patients with NTM Lung Infections

Overview of NTM Lung Infections

Nontuberculous mycobacteria, or NTM, are organisms common in soil and water that
have been associated with lung disease in select patient groups. NTM have
characteristics that are similar to tuberculosis, or TB, but NTM are not
believed to be contagious. Many people have NTM in their bodies, but NTM do not
normally lead to an infection, perhaps because the body's immune system
successfully overcomes the threat of infection. It is not completely understood
why certain individuals are susceptible to NTM infections. However, the
patients who become infected by NTM often are immune-compromised, due to
comorbidities such as HIV or rheumatoid arthritis, or have structural damage in
their lungs, due to smoking, chronic obstructive pulmonary disease or CF, at the
time of the infection.

NTM are organisms that invade and multiply chiefly within macrophages. They are
characteristically resistant to most antibiotics. NTM lung infections are
chronic, debilitating and progressive and often require lengthy, repeat
hospitalizations. Signs and symptoms of NTM pulmonary disease are variable and
nonspecific. They include chronic cough, sputum production and fatigue. Less
commonly, malaise, dyspnea, fever, hemoptysis, and weight loss also can occur,
usually with advanced NTM disease. Evaluation is often complicated by the
symptoms caused by co-existing lung diseases. According to a study published in
the American Journal of Respiratory and Critical Care Medicine, these conditions
include chronic obstructive airway disease associated with smoking,
bronchiectasis, previous mycobacterial diseases, CF and pneumoconiosis (Olivier
et al. 2003).

Current Treatment Options and Limitations

We believe there currently is no drug approved in Europe or the US for treatment
of NTM lung infections, and as a result all current drug treatments for NTM are
used off-label. Patients are often treated with the same antibiotics that are
used to treat TB. Such treatments usually consist of lengthy multi-drug
antibiotic regimens, which are often poorly tolerated and not very effective,
especially in patients with severe disease and patients who have failed prior
treatments. NTM patients average 7.6 antibiotic courses per year (SDI Healthcare
Database, July 2009). Treatment guidelines published in 2007 in the American
Journal of Respiratory and Critical Care Medicine reported that few clinical
trials were under way to identify treatment recommendations, and no new
antibiotics had been studied for the treatment of NTM lung infections in
multi-center, randomized clinical trials since the late 1990s.

Although approved for other indications, amikacin sulfate is not approved by the
FDA for NTM lung infections. In practice, however, it is often recommended by
physicians as part of the standard treatment regimen for some NTM patients. It
is delivered most commonly by intravenous administration and, far less often, by
inhalation. Because the drug is delivered for months at a time, resulting in
high systemic (blood) levels of the drug, there can be considerable toxicity,
including ototoxicity and nephrotoxicity, associated with intravenous
treatment. There are very few prior studies to support what doses should be
. . .